MSCI’s emerging markets benchmark rose 0.6%, lifted by Asia where Taiwan closed at 27-year highs and Hong Kong-listed Chinese shares rose 0.75%.
Chinese Shanghai- and Shenzen-listed shares were at 18-month highs after MSCI said it could add another 195 firms to its emerging markets index having this month given the green light to 222 stocks to join in a year’s time. On currency markets, the dollar remained pinned flat as markets have been pricing out another US rate rise this year, given the run of soft economic data while the US bond curve is at the flattest in a decade, with 10-year yields just off seven-month lows.
“People are still happy to buy EM assets and high yielders. We have well digested the Fed.
Maybe there could be a question about inflation this week — we expect a decline in both Europe and the United States,” said Guillaume Tresca, a strategist at Credit Agricole in Paris.
“We are trying to find a trigger for a sell off — such as bad inflation, the ECB, political risk — but all these factors are okay for now.” That backdrop has allowed emerging currencies to rally, with currencies ranging from the Korean won to the South African rand and the Turkish lira rising around 0.4% to the dollar.
The rouble jumped 0.8%, rising off four-month lows hit during last week’s oil price fall.
Although world markets have remained sanguine, Morgan Stanley pointed out the possible fallout on oil prices.
Political risk may also flare in South Africa where investors are concerned about the threat to central bank independence.
“In the very short-term we are still positive on the rand, due to the carry. But we see a long-term depreciation due to the high political risk,” Tresca said. “The central bank has always been a positive factor for ratings agencies and investors.”
